Credit control must remain: central bank

While other central bankers have called for increases, Governor Yang Chin-long said such measures could be added later to rein in house prices.

  • By Chen Cheng-hui / Staff Reporter

The central bank intends to maintain selective credit controls on local banks for an extended period and may fine-tune its control measures, central bank governor Yang Chin-long (楊金龍) said on Saturday.

The central bank’s main concerns stem from rising house prices in Taiwan and the year-over-year growth in outstanding housing loans from lenders remaining high, Yang said.

The governor made the remarks during a speech at a forum in Taipei focusing on the central bank’s role in ensuring healthy development of the housing market.

Photo courtesy of the central bank

“The central bank will continue to review and adjust selective credit control measures on an ongoing basis to promote financial stability,” Yang said, as quoted by the central bank’s website.

The central bank has introduced four rounds of selective credit controls on local banks since December 2020 to curb rising property prices and land hoarding.

The measures have gained momentum and include tighter loan-to-value ratio limits on property purchases and restrictions on pre-sale housing transactions, which were necessary because mortgages made up most bank lending and transactions. speculation had been reported in several cities, the central bank said.

Other central bankers had suggested adjusting interest rates to curb rising house prices and curb speculation.

In an article in the January issue of Taiwan Banker magazine, Central Bank Deputy Governor Chen Nan-kuang (陳南光) wrote that low interest rates are responsible for rising oil prices. real estate and should be included in the considerations on the monetary policy tools to deal with the release.

Reiterating his position, Yang said the central bank would raise policy rates at the appropriate time, which would prevent house prices from rising further, make selective credit controls more effective and help promote financial stability.

However, Yang said the central bank primarily uses interest rates to stabilize the overall economy, adding that rates are just one of many factors that affect house prices.

Interest rate adjustments have a wide range of effects on the economy, Yang said, adding that it takes a significant rate increase to significantly affect house prices.

“If the house price issue is simply dealt with through interest rates, the trade-off would be a substantial slowdown in economic growth, and the costs would far outweigh the benefits,” Yang said. “Nevertheless, a slight increase in policy rates would not only fail to achieve a significant downward revision in house prices, but could also lead to an increase in unemployment.”

“Rising interest rates don’t really help young people who are struggling to buy a home. The main winners are the elderly and the wealthy,” he added.

Housing market development covers a wide range of issues, such as financial stability, housing justice and resource allocation, and there are structural issues rooted in the domestic housing market, the governor said. , adding that the issue is complex and requires a and local government agencies to work together to find short, medium and long term measures to deal with the issue.

Yang said the rise in property prices in Taiwan over the past two years was due to demand-side factors – such as ample global liquidity, strong private investment, consumer anticipation and market speculation – and supply-side factors – including rising land prices and building material and wage costs.

The housing market has been particularly hot in recent years in central and southern Taiwan, he said.

Current credit checks are broader, more diverse and stronger in scope than previous measures, he said.

However, to effectively reduce unrealistic expectations, curb speculation and prevent land hoarding, other financial and fiscal measures would also be needed, while increasing the number of social housing units and providing affordable rental housing remains crucial, said said Mr. Yang.

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